Oracle's Exec Swap Portends Near-Term Change

Mark Hurd is in at Oracle, and Charles Phillips is out. Based on the company's track record, that could signal that a major acquisition or other big move is imminent.

In hiring Mark Hurd and showing Charles Phillips the door, Oracle CEO Larry Ellison is replacing one type of number cruncher with another. The difference in their areas of expertise may tell us something about the direction Oracle is heading. And history suggests that any changes will come sooner rather than later.

At the time he was hired by Oracle in 2003, Phillips was arguably the industry's leading expert on the commercial software market. As a Morgan Stanley analyst, Phillips had an unparalleled ability to slice and dice a software vendor's quarterly results. He was repeatedly named the No. 1 enterprise software analyst by Institutional Investor magazine, and InformationWeek featured the former Marine on our cover as early as 2000. In fact, Phillips was on InformationWeek's editorial advisory board well before Ellison or President Obama (who named Phillips to his Economic Advisory Board) ever took notice of his analytical prowess.

I came across a report deep in my e-mail archive that Phillips authored on PeopleSoft's financial results for the first quarter of 2003 when he was with Morgan Stanley. At the time, PeopleSoft's quarterly license revenues came in $30 million short of expectations. However, Phillips observed that PeopleSoft had closed business in the last week of Q4, pulling what would have been Q1 revenue into the earlier quarter, and he determined that the licensing shortfall was no big deal. In analyzing the company's upgrade cycle, steady demand for HR software, the economy, the outlook among government customers, PeopleSoft's bonus plan, and other factors, Phillips reasoned there was no need for investor concern.

"PeopleSoft is still a franchise company in the enterprise software business with lots of important customers," he wrote. "It's a well managed company with protectable margins in tough times and a product that is difficult to swap out."

The timing of that report, April 2003, is notable. A month later, in May, Oracle hired Phillips as executive VP, reporting to Ellison. And one month after that, Oracle launched a hostile takeover of PeopleSoft, a deal that closed a year later for $10.3 billion, nearly twice the size of its more recent Sun Microsystems acquisition. Since then, Oracle has spent some $40 billion acquiring more than 50 companies.

With Phillips leading its sales, marketing, and vertical industries business, Oracle grew from $9.5 billion in fiscal 2003 to $23.3 billion in fiscal 2009, during which revenues from software and support rose from 76% of overall sales to 80%. This at a time when software as a service and cloud computing threatened its model.

Hurd, meanwhile, is known as an operations guy, someone who makes the tough decisions required to squeeze costs. At Hewlett-Packard, he also managed big acquisitions, including EDS ($13.9 billion), 3Com ($2.7 billion), and Palm ($1.2 billion).

What does Hurd's background portend for Oracle? It suggests that Oracle may be in for another major acquisition (Salesforce? Teradata?), serious cost cutting, and/or stepped up competition with HP and IBM in the computer systems market. As Oracle tries to absorb more than a dozen companies in the past year alone, Hurd may be the ideal person to integrate and, where there's overlap, eliminate.

As we mull the possibilities, it's worth remembering how quickly Oracle acted when Phillips came on board—within a month, Oracle set off on its largest acquisition ever. Assuming HP's breach-of-contract suit (filed Sept. 7 to block Hurd from taking the Oracle job) doesn't stop him, look for Hurd to make his imprint quickly.

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